Disability income insurance Featured

7:00pm EDT December 26, 2009

How would your family’s financial needs be met if your income were suddenly cut off and replaced by a stack of medical bills? While it isn’t a situation that anyone wants to think about, the possibility of becoming seriously ill or injured should be treated just as any other business risk and should be insured accordingly.

“Disability income insurance, often referred to as ‘DI,’ is important precisely because so much is riding on your ability to earn an income,” says Alfred P. Robertson, CLU®, ChFC®, executive vice president of Peachtree Planning Corporation. “No matter how young or healthy you are, you are at risk of becoming disabled at some point in your life.”

Smart Business learned more from Robertson about how disability insurance can protect you and your business if you become disabled.

Why should business owners concern themselves with disability income insurance?

Consider the statistics: If you are under the age of 35, the chances are one in three that you will be disabled for at least six months during the course of your career. Men have a 43 percent chance of becoming seriously disabled during their working years; women have a 54 percent chance. At age 42, it is four times more likely that you will become seriously disabled than die during your working years.

Would you be able to survive financially if you had to miss an extended period of work due to illness or an accident? According to the Council for Disability Awareness, 70 percent of working Americans lack the financial resources to meet short-term emergencies. Only 28 percent of workers have long-term disability coverage.

What should you look for in a good disability insurance policy, and how do you find an insurance company you can trust?

The right disability income policy can keep you and your family financially afloat even if you suffer a long-term disability. Prior to shopping for a policy, familiarize yourself with the features that are important and understand the language the insurance industry uses to describe them. To get high-quality coverage you can count on, consider the following terms:

Non-cancellable — Premiums cannot change and policy cannot be cancelled until age 65 or 67, as long as premiums are paid on time.

Renewable for life — Conditionally renewable as long as you are gainfully employed and not disabled.

Own Occ — Defines being ‘totally disabled’ when you are not able to work in your own occupation even if you are at work in some other capacity.

Riders — Optional benefits to enhance the base contract.

A competent financial professional can help you select a reputable company with a history of experience in the disability income insurance business. They can help you design the best policy for your needs.

How can disability insurance protect your business?

As a business owner, you must also protect the business you have worked hard to establish and grow. Special policies, available from the same insurers that offer high-quality individual coverage, offer business protection while you recover from a disability.

Consider a separate type of disability policy known as business overhead expense (BOE) to help meet the expenses of running the office while you are disabled. Benefits from these policies provide reimbursement for expenses incurred, such as rent and utilities as well as interest on debts.

What about business owners who are in partnership or who aren’t the sole owner?

Business owners who are in a partnership or have co-owners should consider a policy known as a disability buyout (DBO). In much the same way that life insurance benefits can be set aside to fund a buyout by the surviving partner if the other partner dies, DBO is designed to fund the purchase of the disabled partner’s share of the business by the nondisabled partner. Such a policy can be in place before a disability occurs and may be used to sustain the business.

Furthermore, in combination with the disabled partner’s individual disability income coverage, a DBO policy can permit the business to continue to generate income for the working partner while the disabled partner is supported by the benefits from an individual DI policy.

As part of your overall business planning, you owe it to yourself to look into protection for the one thing that makes all other planning possible: your ability to earn an income.

Alfred P. Robertson, CLU®, ChFC®, is a general agent with the Mathis-Hill-Robertson Agency of the Guardian Life Insurance Company and is executive vice president of Peachtree Planning Corporation. Reach him at (404) 260-1628 or al_robertson@peachtreeplanning.com.